Investing to make an impact
What is impact investing?
Impact investing is a style of sustainable investing that is growing in popularity.
Impact investing is a growing field of investment that is helping to finance solutions to some of society’s biggest challenges.
As interest in sustainable investing grows around the world, more and more investors are seeking strategies that can deliver not only strong financial returns, but also a measurable impact on environmental and social challenges such as climate change, wealth disparities and unequal access to healthcare.
Impact Investing is a style of active, sustainable investing; it seeks to both generate long-term returns as well as achieve positive social and environmental outcomes by investing in businesses that contribute towards a more sustainable and inclusive world.
How is impact investing different from ethical investing?
Ethical investing is focused on avoiding investments that have a negative impact on society or our environment. Impact investing seeks to go a step further. Instead of screening out negative impacts, impact investments are made to organisations, projects or funds which are generating measurable, positive social and environment outcomes, in addition to financial returns.
Impact investing expands the total pool of funds available for social and environmental purposes; it encourages innovative approaches to solving old problems; and recognises that challenges facing society are too large and complex to be solved by government, philanthropy, and not-for-profit organisations alone.
What is an impact investment?
Impact investments are investments made into organisations, projects, or funds with the intention of generating measurable social and environmental outcomes, alongside a financial return. This may be providing finance for businesses in sectors as diverse as aged care, renewable energy, and the arts.
Who are the investors?
Many types of investors participate in impact investing including public and private foundations; family offices; banks and other institutional investors such as superannuation funds and insurance companies; governments; fund managers; community finance organisations; and individual investors.
Impact investments can be made directly into an organisation or via a managed impact investment fund. They typically come in the form of a loan (debt) or a private stake in an entity (equity) and span different asset classes.
Risks
As with all investing, impact investing also carries risks.
Different investment strategies and asset classes have different levels of risks.
As active impact investing seeks to outperform the benchmark over the long-term, it may generally be more suitable to investors with a higher tolerance for the risks associated with share market volatility and a longer time horizon.